“It is strange that two authors that have provided us with the deepest understanding of the workings of modern capitalism, Marx and Hayek, have little to say about specific economic policies. Marx advocates the broad but undetailed policy of central or collective planning and public ownership. Hayek’s policy stance is diametrically opposed to that of Marx but is hardly less bland: we are offered the generalities of more market competition and extended private ownership. Hayek, like Marx and his followers, has very little to say in detailed, policy terms. The common blindness to varieties of capitalism disables their theoretical systems in policy terms.
The way out of this difficulty is to place the detailed analysis of capitalist institutions and of national and corporate cultures at the centre of the stage. Institutional economics thus provides a fruitful approach to the formulation of relevant and operational economic policies. With the notable exception of Veblen, many leading institutionalists in the past have been deeply involved in the development of economic policy. Much of this work was based on empirical study, but there is no reason why work in the future should not be guided by the deepest theoretical and methodological insights. Instead of empty formalism there is the possibility that economics may thus be capable of providing inspiration and sagacious guidance for those in government, finance and business.”
Geoffrey M. Hodgson (1999), Economics and Utopia, p.148
There is much to admire and draw on in Hodgson’s reboot of ‘old institutionalist’ economics, which focuses on the analysis of institutions as social structures, providing the basis of routinised and habitual behaviour in evolving economies, not least under capitalism. They can potentially be changed by purposeful human action or agency, so theories such as these are irreducible to either the rational individual of neoclassical economics, or the social individual whose behaviour is determined by society, as in extreme versions of holism.
Instead we have the dynamic interaction of human agency (individual or otherwise) and social structure (including institutions) which together determine the evolution of society and the economy. This framework is sufficiently broad to allow ideas which draw on such diverse thinkers as Marx, Keynes, Veblen and Hayek. While this may not overturn the dominant mainstream neoclassical economics, in my view it helps to inform a far richer alternative political economy.
For those who are interested, Hodgson’s refreshing New Politics blog can be found here.